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With Friends Like These, Minister

Posted on: September 21st, 2009

According to Finance Minister Brian Lenihan, the banks should be “grateful” for the taxpayer’s help.

Do not hold your breath; they will take the Nama money and run.

Far from being grateful, AIB was deeply embarrassed by the nation’s generosity.

So embarrassed was the country’s biggest bank that it rushed out a press release after the minister’s speech.

AIB was back in the hubris business: it insisted that it was well able to raise €2bn from its own resources over the next 18 months. And if it failed, there was always Brian in the background ready to pick up the tab. That was the subtext.

Bold words from the biggest offender of the lot.

Of course, AIB’s undisguised delight at the terms of the Nama Bill was sensed by the markets in a flash. The Irish stock market had already closed for business when the minister sat down, but within minutes the dealing boys headed across to Wall Street (where the markets were still open) to trade obscure products called American Depositary Receipts (ADRs) — US proxies for the main Irish bank shares.

The Nama Bill sent both major Irish banks’ proxy shares into orbit in the US. Within hours AIB had spiked by 26 per cent. Bank of Ireland gained a more modest 16 per cent overnight. On Thursday Bank of Ireland followed AIB’s lead, claiming that it too could meet some of its capital needs. The subliminal message was clear: thank you, Brian, for the dig out, but now it is time for the second part of the missive: hands off.

The banks do not do gratitude.

When Dublin opened on Thursday, bank shares went through the roof. Dealers were convinced that it was game, set and match in the bank versus taxpayer duel.

Stock market maestros do not give a hoot about the Irish taxpayer. Indeed sometimes, when governments are inflicting maximum pain on ordinary people, the cruel, cold nature of markets sends shares soaring.

A rise in unemployment can mean that nasty fiscal measures are working and propel government bonds upwards; draconian cuts, making the life of poorer citizens miserable, can lift markets ready to applaud government ‘leadership’; generosity to the taxpayer can be seen as extravagant vote-buying and send shares tumbling.

So, stock markets are perverse. That is why dealers were so delighted with the Nama Bill. If the taxpayer was sacrificed, the banks were safe.

All the usual suspects — the new “Friends of Brian Lenihan” — were suddenly lining up behind Nama. Davy stockbrokers was delighted. True to form, on Thursday morning, Davy rated both Bank of Ireland and AIB “outperform”.

Davy had been cheerleaders for Nama for weeks. One of their top dogs, Robbie Kelleher, was first out of the traps to greet the bill on Wednesday’s Nine O’Clock News. He described Nama as “the best of the available solutions. It crystallises the solvency issues up-front and it injects a huge amount of liquidity into the banking system”.

Kelleher is correct about liquidity going “into the banking system”. But will the liquidity go into back-against-the- wall businesses? It may go into the banks, but will it ever come out?

Kelleher was followed by a series of establishment figures lining up to welcome the measure. Bankers wisely kept their heads down but stockbrokers, auctioneers and even tax experts were backing the bankers’ ‘get out of jail’ card.

Irish Auctioneering and Valuers Institute (IAVI) President Aine Myler surfaced to talk to Emma McNamara on RTE’s Morning Ireland. Nama is manna from heaven for auctioneers. Guys with no work will be bidding for valuations on the Nama properties by the bucketful. Not a surprise that the same auctioneers, who hyped the markets in the recent past, are rooting for the minister and for the patrons from Nama with the gifts of the gigs.

Myler was an enthusiast: “I think the market needs Nama to help it out and it needs to happen very quickly.”

Is this the same Aine Myler who, just a few short months ago, said of Nama: “It is a frightening scenario for the future viability of the property market in Ireland that a huge portion of the market will, effectively, be controlled by the State.”?

Ah well, it’s up and running now. And in the same interview on Thursday, Aine showed the sort of flexible brass neck for which auctioneers are famous. She made a brazen pitch for Nama board places for auctioneers, pleading that the skills needed included “property expertise”.

No doubt the same property “expertise” as had landed us in this mess.

Even the poor wimps from employers’ group IBEC were wheeled out to approve the project.

The IBEC wimps are on a bit of a spit. Above all, they should have been protesting that the bill guaranteed nothing for business.

Far from it. They were ducking and diving.

IBEC was as usual, on message. Their paymasters in the banks and their ‘social partners’ in the Government influenced their limp approval of the project. IBEC “welcomed the measures announced by the finance minister”. And then a spokesman added: “It is in everybody’s interests that we move quickly to repair our banking system and restore the flow of credit throughout the economy.”

Ahem. The first part is a given. The second one is a dead duck.

Perhaps IBEC did not read the small print. . .

A torpedo is buried on page 25 of the Supplementary Information to the Bill.

Addressing the question of whether Nama will provide more credit to business, the Department of Finance brief reveals: “The banks’ obligation is to make credit available, rather than to reach a specified level of lending. Both banks have reported that they have made funding available to meet this requirement, although actual lending levels remain well down on last year.”

On the surface, a contradiction. In reality, it is not; just a devious little word play. Square this: more funding is available to business; but lending levels are down.

Solution: the banks will earmark more funds, but watch out for the conditions. Anecdotal evidence suggests that no small business can touch some of the conditions attached to loans with a bargepole.

Hey presto. The money is “available” but it is untouchable. The poor banks will be forced to leave it in their balance sheets or use it for more tempting projects!

Old sleight-of-hand is helpful.

No one could expect the thick skulls of IBEC to spot this. IBEC is hopelessly conflicted. They aspire to support business, which desperately needs liquidity; but IBEC’s biggest funders — and its most powerful members — are the banks.

These are the same banks which are dragging their heels at letting the Nama money provide oxygen to IBEC’s declining membership and its satellite, the Small Firms’ Association.

IBEC should make up its mind: does it represent the banks who are starving business or the businesses that are being starved by the banks?

Brian Lenihan should choose his friends more carefully. To date, a minister with sincere convictions about the merits of Nama has found cheerleaders among bankers, market speculators, stockbrokers, consultants, fund managers, auctioneers and IBEC.